MomentumOptionsTrading.com Weekly Wrap for 4/15/12

11:30pm (EST)

 

1.  Market Summary 

2.  Great Wolf Resorts (WOLF) – Bidding War Erupts

3.  Global Payments (GPN) Tumbling, Further Risk Ahead   

4.  Earnings 

5.  Weekly Wrap Portfolio Update 

6.  Week Ahead

(To view the charts, please log into the Members Area and go to the Weekly Wrap Premium section.  We are running a little late tonight so please give us an hour.)

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1.  Market Summary   

“While we should get the pullback we have planned on, we still have to guard for a snap-back rebound because the Fed could be in play again.  Many believe the Fed wasn’t going to act on another round of quantitative easing because the economy was “recovering” but the latest headlines are painting a different picture.

The important clues to watch for will be the major support levels we have just covered.  If they hold, and the Fed does do something, then the pullback could be mild.  If the bears gather enough momentum and crack several layers of support while the Fed sits idle, then we will be on the verge of a trend change.”  (4/8/2012 Weekly Wrap/ Monday Morning Outlook)

The bears had to wait 3 days to slow down the bulls momentum but Monday’s open was worth it for those who are short the market like us.  The major indexes opened to a sea of red and spent all session trying to hold down the second wave of support.  The first wave was cracked during the prior week which our chart work showed but the bulls were able to hold off the onslaught just long enough to be saved by the closing bell.  Although the market finished slightly off their lows and above our near-term support targets for the session, Tech didn’t as the Nasdaq closed below 3,050.

Tuesday’s session was a follow thru as the bears were able to push the second wave of support and then some as the Dow closed below 12,800 while the S&P tested 1,350.  The major indexes were on the verge of totally collapsing as each was down 3%-4% for the month following the 2% pullback.

The talking heads were thanking Alcoa (AA, $9.85, down $0.32) for better-than-expected earnings following their report after Tuesday’s close as the market made an expected bounce on Wednesday.  Alcoa’s surprise was nice but it wasn’t the catalyst for the rally, it was a simple bounce off support.  We closed 6 winning puts trades in the morning as we figured a test to resistance, which was prior support, was coming. 

Typically, after a break of a strong uptrend, a stock or the market will go back and test the rising channel that had been broken.  These types of patterns are known as bear flags or dead cat bounces so we knew there could a continuation on Thursday as the bulls made up less than half of Tuesday’s losses.

Futures were pointing towards a huge open on Thursday before the unemployment figures were released but were hammered after Initial Claims rose by 13,000.  It didn’t matter though as the market soared and reclaimed some support following a 1+% gain across the board.  The rally lasted throughout the day as Wall Street eagerly awaited Google’s (GOOG, $624.60, down $26.41) quarterly results and the hope of a better-than expected China GDP (Gross Domestic Product) number which was expected to come in at 8.4%.  There was Wall Street water cooler talk that China’s GDP number could come in at 9% or better.           

Well, one-out-of-two came true as Google beat estimates (but missed on revenue by a smidge) while China disappointed as GDP came in at 8.1%, down from 8.9%.  Futures were down heavy before Friday’s opening bell which was exactly what we wanted to see as we have been loading up on put options over the past few weeks.

The Dow got hammered for 137 points, or 1.05%, to finish at 12,849 on Friday.  The blue-chips gave up the 13,000 level on Monday’s open and closed below 12,800 on Tuesday which were the next waves of support we said to watch for.  The bounce on Wednesday and Thursday was exactly what we wanted to see as the Dow traded to 12,987 but could not clear 13,000 and finished below its 50-day MA.  This will be the first wave of resistance followed by 13,200.  A close below 12,800 again would get 12,600 back in play, followed by 12,350-12,300.  For the week, the Dow fell 210 points, or 1.6%, after starting the week at 13,060.  Year-to-date, the blue-chips are up 632 points, or 5.2%.   

The S&P 500 tanked 17 points, or 1.25%, to settle at 1,370.  The index traded to a low of 1,357 on Tuesday’s beat down and easily fell through our 1,375 target and nearly took out our 1,350 target as well.  The surge on Wednesday and Thursday sputtered out at 1,388 but well short of 1,400 which represents major resistance going forward.  A break below 1,350 would get 1,325-1,300 back into the picture.  The S&P 500 started at 1,398 on Monday and declined 28 points, or 2%, for the week.  For the year, the index is up 113 points, or 9%.   

The Nasdaq got punished for 44 points, or 1.45%, to end at 3,011.  Tech closed at 3,047 on Monday which was the first close below 3,050 since mid-March.  We said a close below this level would likely lead to a test down to 3,000-2,950 and Tuesday’s low was 2,987.  Thursday’s high was 3,059 and the close at 3,055 made us a little nervous going into Friday because we were back over 3,050.  However, we got the word on China’s GDP numbers late Thursday evening and hit the rack like a happy sack of potatoes as we knew Friday would be bearish.  We said a test down to 2,850 would be a 7% decline from prior levels before last week started and the bears got half of it before the bulls made one last hurrah.  The Nasdaq did close above its 50-day MA but not by much.  The Nasdaq was at 3,080 to start the week and gave back 69 points, or 2.3%.  For 2012, the index is up 406 points, or 15.6%.

The S&P Volatility Index ($VIX, 19.55, up 2.35) was at 16.70 before Monday’s session and easily closed above our 17.50 target by the close after the bear attack.  The VIX finished at 18.81 and the close at 20.39 on Tuesday were the clues we were looking for as confirmation of a trend change – along with the major break of support by the Dow, S&P and Nasdaq.  A move above 22.50 this week would be a good indication the market could correct 8%-15% by the summer with the VIX pushing 26 and its 200-day MA.  This of course, is our worst case scenario but is something we are preparing for.    

The Russell 2000 was off 12 points, or 1.5%, and closed at 796 on Friday.  The index closed at 803 on Monday and 784 on Tuesday but held 780.  We knew when the S&P opened at 808 and below 810 to start the week that the 800 level would fall quickly.  We mentioned 780 in our red box from last week’s chart and a break below this level could lead to 750.  A run back above 810 would be bullish but would need to hold for several days to reverse the bears’ momentum.  The Russell got zonked for 22 points for the week, or 2.7%, after starting Monday’s session at 818.  The index is up 56 points, or 7.5%, for the year but the money did not rotate out of the big cap names into the small caps and was another warning sign the market was headed lower.         

It doesn’t appear first-quarter earnings are going to save the bulls but we will get some bigger clues this week as the season kicks into second gear.  The financial stocks were a catalyst that carried the bulls higher over the back-half of the rally from January to the end of March but they are showing weakness and the selling pressure picked up steam going into Friday’s close.  This could be a hint of things to come as banks struggle with matching last year’s 1Q revenues.

The Fed could come into play but the QE3 story has been rehashed so many times we don’t even pay attention to it anymore.  We know not to fight the Fed, but how powerful will the Fed’s last bullet be?  The talking heads and slick switching analysts keep throwing QE3 when there is bad economic news and we have heard talk of the Fed possibly buying mortgage-backed securities.  However, Ben Bernanke was mum in his public appearances last week and seemed nervous when he babbled.  To us, this wasn’t a convincing poker face and the bears could call any bets he might make.

Another clue and possibly the final piece of the bear’s puzzle will be if they get a negative close on Monday.  The S&P has not closed down on back-to-back Friday’s and Monday’s all year.  The prior THURSDAY and Monday were down days and this past Friday was a loser.  If this Monday ends in a bear victory it could mean money is moving to the sidelines and our predication, or warning of a correction could be on the horizon.

We like to remember the old saying that stocks or the market often take the stairs higher but sometimes tend to take the elevator on the way back down.  If volatility picks up like we think it will and the market continues lower, we will be on track for another sweet week.

Futures are showing a slightly lower open as we head to press but it is early and the European markets have yet to open. Dow futures are down 25 points to 12,763 while the S&P 500 futures are lower by 3 points to 1,362.  Nasdaq 100 futures are off 6 points to 2,687.  

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Key of Technicals Used In Following Articles

 

2.  Great Wolf Resorts (WOLF) – Bidding War Erupts

By Michael Bryant

 

So we have another bidding war.  Two private equity funds, KSL Capital Partners and Apollo Management, are in a bidding war over Great Wolf Resorts (WOLF, $7.43, up $0.10).  As they continue to place bids for the company, shares will creep up until one pulls out.  Who will it be and how much will they be willing to pay?

Founded in 1992, the $243 million company based in Madison, Wisconsin is North America’s largest family of resorts featuring indoor water parks and other family-oriented entertainment activities under the Great Wolf Lodge brand name.  The resorts features an outdoor pool, themed restaurants, ice cream shop, full-service adult spa, kid spa, game arcade, gift shop, miniature golf, interactive game attraction, family tech center, meeting space, nature hike, and story time.  Popular brands include MagiQuest®, Scooops® Kids Spa, and Cub Club™.   One can take a virtual tour here http://www.greatwolf.com/concord/video-image/virtual-tours .  The primary target customer base is families with children ranging in ages from 2 to 14 years old that live within a convenient driving distance of the resorts.  It has no debt maturities until July 2014.

Great Wolf Resorts saw revenues and attendance hit record levels last year, prompting the stock to gradually rise.  On March 13th the stock jumped when Apollo Global Management offered to buy the company for $5 a share.  Great Wolf Resorts then adopted a poison pill preventing any single shareholder from acquiring more than 12.5% of the outstanding shares to prevent someone from buying enough shares to halt the deal.  However, most shareholders said the deal was too low, and some even said that shares were worth twice the buyout price. 

On April 4th, KSL Capital Partners placed a bid at $6.25 a share.  Apollo Global Management came back quickly and offered $6.75 a share but KSL Capital Partners again thwarted the buyout with a $7 a share offer.  It seems very possible there could be another higher offer company.

Denver’s KSL Capital Partners LLC is a private equity firm that invests in travel and leisure businesses and has been moving aggressively to acquire new resorts and recreation-oriented properties.  It now operates the Squaw Valley USA and Alpine Meadows ski resorts near Lake Tahoe in California.  In May 2011, it purchased the Montelucia Resort in Scottsdale, Arizona, for a reported $115 million.  And in April 2011, it purchased The Royal Palm Hotel in Miami Beach for a reported $130 million.  The firm currently has in excess of $3.5 billion in equity and the average acquisition size has been less than $400 million.

So how much is Great Wolf Resorts worth?  Based on the prices KSL paid for the two properties mentioned and the fact that WOLF has 11 resorts, one can argue that it is worth at least $500 million.  However, we doubt KSL will pay that much given its average acquisition size of less than $400 million.  And Apollo will only pay as much as necessary.  Thus, we will put $400 million, or $12.67, as the ceiling for this bidding war.

As of the end of 2011, the company’s total property value minus accumulated depreciation was $576.12 million.  Comparing this to its market cap of $234.48 million, the value of its property is worth about 2.45 times more than its current market value, or $18.26 per share.  However, we must include the total debt in the calculation.  Total equity equals total assets minus total liabilities.  Total equity at the end of 2011 was $141.85 million.  Dividing that by the shares outstanding, which is 31.25 million, we get a share price of $4.53, much lower than the first calculation.  The second calculation is essentially the book value per share.  We believe the true worth of the company is somewhere in-between these two numbers.  The average of the two numbers is $11.40 per share.

Intrinsic value is the present value of all expected future cash flows divided by the total number of shares outstanding.  The graphs below show that cash flow and revenue seemed to stay around $5.9 million and $70 million respectively over the last 3 years, although the year-over-year graph says both are slowly growing.  Revenue seems to be growing about $4 million per year.  Operating cash flow seems to be growing by about $2 million per year.  Current year-over-year quarterly revenue growth is 4.7%. 

Before the first buyout offer, the market was pricing the shares at about 6.85 times last year’s free cash flow.  If we assume free cash flow will grow about half as fast as revenue, about 2.3%, use a discount rate of 10%, the average for the S&P 500, and assume that shares will trade at about 6.85 times 2012 free cash flow, we get a market cap of $234.55 million, which is almost exactly the current market cap.  If we raise the assumption to 10 times 2012 free cash flow, we get a market cap of $273.19 million, or $8.65 a share.

It’s nice to see that cash & cash equivalents seem to be growing.  This will help it make a case for a higher bid.  And if total expenses remain below revenue, the company may be able to report a profit.  The earnings have remained steady, but negative.

The current EV/EBITDA is 9.31, meaning it will take the acquirer 9.31 years to recover the investment.  That seems a hefty price to pay.  Then again, the price/sales ratio is 0.78, implying that shares are still 22% undervalued based on sales.  That would give a price of $9.06.  Trailing twelve month revenue is $296.71 million, giving a price of $9.47 based of revenue.

Wall Street coverage is low as only 3 analyst cover the stock according to Thomson/First Call.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.7, unchanged from a week ago.

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

0

0

0

0

Buy

1

2

2

3

Hold

2

1

1

0

Underperform

0

0

0

0

Sell

0

0

0

0

 

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3.  Global Payments (GPN) Tumbling, Further Risk Ahead

Things just are not working well for one of the world’s leading electronic transaction processing services.  We warned about possible bearishness in Global Payments (GPN, $44.72, down $0.73) in our July 17, 2011 newsletter.  Shares were at $51.29 at the time of the newsletter, and the stock’s fall may not be over.

On March 30th, the $3.5 billion company reported a data breach where the account numbers of 1.5 million accounts had been stolen.  Two days later, the company further reported that the thieves had stolen card account numbers, expiration dates, and security codes, and had been able to export the data.  This caused Visa (V, $123.16, up $2.14) to pull out of its relationship with the company, which also caused the stock to plunge from $52.23 per share on March 29th to $45.74 per share on April 2nd, a decline of over 12%. 

Although a 12% fall may be an overreaction, others may also pull out.  Visa is the world’s largest credit card provider, so this could dramatically hurt their business.  The breech may end up costing the company millions of dollars, like a similar incident did to Heartland Payments (HPY, $29.27, down $0.18) back in 2009.

Global Payments suffered another setback when shareholder rights firm Robbins Umeda LLP opened an investigation for possible breaches and other violations of the law by certain officers and directors.  This could hurt the company’s reputation and add additional costs.

At $44.72, the stock is below its low target of $46.00 made by the 22 analysts recorded by Thomson/First Call.  The mean target is $52.14, the median target is $52.00, and the high target is $63.00.  Using a scale of 1.0 as a strong buy and 5.0 as a sell, the average rating of the stock was 2.2, unchanged from a week ago.

 

 

Current Month

Last Month

Two Months Ago

Three Months Ago

Strong Buy

7

7

8

10

Buy

9

9

8

6

Hold

14

14

13

12

Underperform

0

0

0

0

Sell

0

0

0

0

 

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4.  Earnings 

The companies in BOLD, we are looking at as possible trades and we may list call or put options on them in our Daily Newsletter.  If they become official recommendations, we sent out Trade Alerts or include them in our 9am and 1pm updates that come out during the week (Quotes are as of Friday’s close, 4/13/12)


MONDAY
 

Andatee China Marine Fuel Services (AMCF, $2.71, down $0.39), Bank Mutual (BKMU, $3.72, down $0.10), Brown & Brown (BRO, $23.49, down $0.43), Cardinal Financial (CFNL, $11.32, down $0.13), Charles Schwab (SCHW, $13.87, down $0.37), Citigroup (C, $33.41, down $1.22), DGSE Companies (DGSE, $7.42, up $0.09), Equity LifeStyle Properties (ELS, $67.00, down $0.42),  Gannett (GCI, $15.04, down $0.03), ICU Medical (ICUI, $48.80, down $0.91), Imperial Holdings (IFT, $2.72, down $0.06), Intervest Bancshares (IBCA, $3.80, up $0.02), Lakeland Bancorp (LBAI, $8.95, down $0.37), Lincare Holdings (LNCR, $24.65, down $0.57), LJ International (JADE, $2.03, down $0.36), M&T Bank (MTB, $84.43, down $1.90), Mattel (MAT, $34.13, down $0.17), Financial Partners,  (PNFP, $16.64, down $0.62), Streamline Health Solutions (STRM, $1.69, up $0.01), Torch Energy Royalty Trust (TRU, $2.01, down $0.02), Triangle Petroleum (TPLM, $6.15, down $0.19), United Continental Holdings (UAL, $21.44, down $0.08), Zoom Technologies (ZOOM, $1.40, down $0.08)

 

TUESDAY

Alliance Financial (ALNC, $30.36, down $1.22), Ames National (ATLO, $21.29, down $0.56), Asia Pacific Wire & Cable (APWC, $3.36, up $0.07), Cathay General Bancorp (CATY, $16.79, down $0.53), China Gerui Advanced Materials Group,  (CHOP, $3.23, down $0.02), Coca-Cola Company (KO, $71.94, down $0.28), Comerica Incorporated (CMA, $30.55, down $0.80), Cree (CREE, $31.55, down $0.99), CSX (CSX, $21.92, down $0.14), East West Bancorp, (EWBC, $21.87, down $0.86), Enterprise Financial Services (EFSC, $11.51, down $0.26), Forest Laboratories (FRX, $33.45, down $0.28), FreeSeas (FREE, $1.53, down $0.32), Fulton Financial (FULT, $10.19, down $0.23), Goldman Sachs Group (GS, $115.09, down $5.30), Hollywood Media (HOLL, $1.01, up $0.04), Intel (INTC, $28.09, down $0.39), International Business Machines (IBM, $202.80, down $2.52), Intuitive Surgical (ISRG, $546.56, down $5.03), Johnson & Johnson (JNJ, $63.54, down $0.61), Lee Enterprises (LEE, $1.16 down $0.02), Lentuo International (LAS, $3.64, down $0.03), Linear Technology (LLTC, $32.05, down $0.43), Marten Transport (MRTN, $21.57, down $0.22), McMoRan Exploration (MMR, $9.01, down $0.15), Mercantile Bank (MBWM, $14.65, down $0.20), New Oriental Education & Technology Group (EDU, $27.57, down $0.30), Northern Trust (NTRS, $45.70, down $1.09), Northwest Pipe (NWPX, $21.19, down $0.04), Omnicom Group (OMC, $48.73, down $0.76), Packaging Corp. of America (PKG, $28.81, down $0.28), Pure Cycle (PCYO, $2.51, down $0.09), Raptor Pharmaceuticals (RPTP, $6.20, down $0.15), RiT Technologies (RITT, $3.45, down $0.05), Seagate Technology (STX, $27.38, up $0.39), State Street Corporation (STT, $43.19, down $0.99), Stryker (SYK, $53.96, down $0.90), TD Ameritrade Holding (AMTD, $18.86, down $0.65), U.S. Bancorp (USB, $30.90, down $0.44), USG Corporation (USG, $16.50, down $0.31), Webster Financial (WBS, $21.03, down $0.84), Yahoo (YHOO, $14.87, down $0.19)

 

WEDNESDAY

Abbott Laboratories (ABT, $59.59, down $0.13), Albemarle (ALB, $62.85, down $0.87), American Express (AXP, $57.28, down $0.76), Amphenol (APH, $58.79, down $0.32), Astoria Financial Corporation (AF, $8.96, down $0.27), Badger Meter (BMI, $33.16, down $0.81), Banco Latinoamericano de Comercio Exterior (BLX, $19.92, down $0.49), Bank of New York Mellon (BK, $23.11, down $0.83), Basic Energy Services (BAS, $15.63, down $0.23), BlackRock (BLK, $197.81, down $3.90), Brookline Bancorp, (BRKL, $8.93, down $0.13), Central Valley Community Bancorp (CVCY, $6.90, down $0.15), Chimera Investment (CIM, $2.75, down $0.05),  China Natural Resources (CHNR, $7.37, Flat), Cohen & Steers (CNS, $33.78, down $0.95), Core Laboratories NV (CLB, $133.05, down $1.52), Covanta Holding (CVA, $15.72, down $0.16), Crown Holdings (CCK, $36.58, down $0.40), Cubist Pharmaceuticals (CBST, $40.10, down $0.76), CVB Financial Corp. (CVBF, $11.19, down $0.40), Donegal Group (DGICA, $13.56, down $0.20), Dover (DOV, $60.92, up $0.06), Exponent (EXPO, $47.26, down $0.67), F5 Networks (FFIV, $122.12, down $2.03), First Republic Bank (FRC, $32.19, down $0.77), Halliburton (HAL, $32.41, down $0.77), HNI (HNI, $25.29, down $0.92), Horizon Bancorp. (HBNC, $17.66, down $0.14), Huntington Bancshares (HBAN, $6.22, down $0.21), IberiaBank (IBKC, $51.94, down $0.61), JAKKS Pacific, (JAKK, $17.54, up $0.14), Knight Capital Group, (KCG, $12.54, down $0.21), Lakeland Industries (LAKE, $10.05, down $0.27), Lam Research Corporation (LRCX, $42.18, down $1.24), LaSalle Hotel Properties (LHO, $27.61, down $0.22), Marriott International (MAR, $37.31, down $0.26), Media General, (MEG, $3.70, down $0.03), Mellanox Technologies, (MLNX, $41.14, down $0.55), Mesabi Trust (MSB, $31.42, down $0.34), Motorola Mobility Holdings (MMI, $39.14, down $0.05), New York Community Bancorp (NYB, $13.16, down $0.34), Pacific Continental (PCBK, $9.02, down $0.26), Piper Jaffray Companies (PJC, $24.81, down $1.43), Platinum Underwriters Holdings (PTP, $35.54, down $0.35), Plexus (PLXS, $32.72, down $0.56), PNC Financial Services Group (PNC, $61.28, down $1.73), Polaris Industries, Inc. (PII, $72.15, down $0.57), Progressive Corp. (PGR, $22.34, down $0.25), Qualcomm (QCOM, $66.67, down $1.66), Quest Diagnostics (DGX, $57.98, down $0.85), RLI (RLI, $69.56, down $0.84), Saba Software, (SABA, $10.02, down $0.34), Select Comfort (SCSS, $34.06, UP $0.62), SLM Corporation (SLM, $14.85, DOWN $0.38), St. Jude Medical (STJ, $38.58, down $1.72), Stanley Black & Decker, (SWK, $76.66, down $0.99), Stanley Furniture (STLY, $4.47, down $0.08), Textron (TXT, $26.85, down $0.50), Umpqua Holdings Corporation (UMPQ, $12.74, down $0.40),  Universal Forest Products (UFPI, $32.12, down $1.25), Virco Manufacturing (VIRC, $1.74, down $0.02), Virginia Commerce Bancorp (VCBI, $7.69, down $0.31), VMware (VMW, $112.48, up $3.41), Wintrust Financial Corporation (WTFC, $33.33, down $1.26), Yum Brands (YUM, $72.86, up $1.99)

 

THURSDAY

Acacia Research Corporation (ACTG, $39.92, down $0.25), Advanced Micro Devices (AMD, $7.73, down $0.19), Alaska Air Group (ALK, $34.76, down $0.51), Alliance Data Systems (ADS, $124.32, down $0.72), Altera (ALTR, $37.48, down $0.94), AMCON Distributing (DIT, $63.25, up $0.75), American River Bankshares (AMRB, $7.26, up $0.15), Arbitron (ARB, $37.92, up $0.60), Associated Banc-Corp (ASBC, $13.11, down $0.42), B&G Foods (BGS, $21.81, up $0.65), Bank of America Corporation (BAC, $8.68, down $0.49), Baxter International (BAX, $58.03, down $0.68), BB&T (BBT, $30.49, down $0.69), Blackstone Group (BX, $14.53, down $0.26), Boston Scientific (BSX, $5.62, down $0.20), Builders FirstSource (BLDR, $3.72, down $0.04), Capital One Financial (COF, $53.47, down $1.18), Cell Therapeutics (CTIC, $1.16, down $0.05), Cepheid (CPHD, $38.00, down $0.82), Chemed (CHE, $62.09, down $0.50), Chipotle Mexican Grill (CMG, $440.40, up $7.18), Chromcraft Revington (CRC, $1.25, Flat), Chubb Corporation (CB, $69.66, down $0.85), City National (CYN, $50.02, down $2.01), CoBiz Financial (COBZ, $6.51, down $0.23), Courier (CRRC, $9.65, down $0.35), Cypress Semiconductor (CY, $14.25, down $0.47), Cytec Industries (CYT, $63.21, down $0.85), Danaher (DHR, $53.88, down $0.61), E*TRADE Financial (ETFC, $10.06, down $0.60), DuPont (DD, $52.02, down $0.39), EastGroup Properties (EGP, $48.44, down $0.17), Electronics for Imaging, (EFII, $17.57, down $0.20), EMC Corporation (EMC, $28.87, down $0.33), Entegris, (ENTG, $8.70, down $0.25), EZCORP, (EZPW, $30.74, down $0.01), Fairchild Semiconductor International (FCS, $14.02, down $0.43), Fifth Third Bancorp (FITB, $14.02, down $0.46), First Horizon National Corporation (FHN, $9.77, down $0.44), First Niagara Financial Group (FNFG, $9.03, down $0.32), Forward Air (FWRD, $35.15, down $0.52), Freeport-McMoRan Copper & Gold (FCX, $36.94, down $0.95), Freescale Semiconductor Holdings I, (FSL, $14.05, down $0.31), Gardner Denver (GDI, $61.41, down $0.48), Gentex (GNTX, $24.62, down $0.03), Genuine Parts Company (GPC, $62.94, down $0.04), Glacier Bancorp (GBCI, $14.00, down $0.49), Hanmi Financial Corporation (HAFC, $9.76, down $0.33), Home Bancshares (HOMB, $26.01, down $0.70), Hub Group (HUBG, $35.21, down $0.21), Insteel Industries (IIIN, $11.25, down $0.32), Interactive Brokers Group (IBKR, $16.61, down $0.39), Ixia (XXIA, $11.54, down $0.31), KeyCorp (KEY, $7.97, down $0.38), Laboratory Corp. of America Holdings (LH, $88.52, down $1.00), Lattice Semiconductor (LSCC, $6.27, down $0.21), Layne Christensen (LAYN, $20.85, down $0.60), Life Time Fitness (LTM, $47.97, down $1.17), MB Financial (MBFI, $20.20, down $0.66), Metals USA Holdings (MUSA, $14.23, down $0.07), Microsoft (MSFT, $30.81, down $0.17), Morgan Stanley (MS, $17.28, down $0.94), Myers Industries (MYE, $16.29, down $0.16), NCR (NCR, $21.43, down $0.22), New York Times (NYT, $6.30, down $0.12), Nucor (NUE, $41.57, down $0.68), OceanFirst Financial (OCFC, $14.16, down $0.27), Peabody Energy (BTU, $28.38, down $0.96), Penn National Gaming (PENN, $41.57, down $0.35), People’s United Financial (PBCT, $12.49, down $0.25), Philip Morris International (PM, $87.84, up $0.58), Pixelworks, (PXLW, $2.51, down $0.04), Pool (POOL, $38.18, up $0.75), PPG Industries (PPG, $95.72, down $1.11), Premiere Global Services, (PGI, $8.07, down $0.30), Rambus (RMBS, $5.64, down $0.27), Ramtron International (RMTR, $1.94, down $0.06), Riverbed Technology (RVBD, $25.52, down $0.85), Rockwell Collins (COL, $57.00, down $0.21), SanDisk (SNDK, $41.11, down $1.05), Sandy Spring Bancorp (SASR, $17.40, down $0.60), Sherwin-Williams (SHW, $116.62, up $1.04), Simmons First National Corporation (SFNC, $24.23, down $0.78), Snap-on (SNA, $59.27, down $0.48), Sonoco Products (SON, $32.44, down $0.11), Southwest Airlines (LUV, $7.94, down $0.20), Swift Transportation Company (SWFT, $10.21, down $0.87), Taylor Capital Group (TAYC, $14.15, down $0.24), TCF Financial Corporation (TCB, $10.83, down $0.47), Tempur Pedic International (TPX, $86.02, up $1.21), Travelers Companies, (TRV, $58.12, down $0.98), Travelzoo (TZOO, $27.35, up $0.02), Trinity Biotech (TRIB, $10.72, up $0.02), Ultratech, (UTEK, $28.95, down $0.43), Union Pacific Corporation (UNP, $108.04, down $0.76), Unitedhealth Group, (UNH, $58.05, down $0.41), Valmont Industries, (VMI, $118.06, down $2.23), Verizon Communications (VZ, $37.26, down $0.29), WESCO International (WCC, $64.76, down $0.48), Western Alliance Bancorporation (WAL, $8.41, down $0.38), Westwood Holdings Group (WHG, $36.02, down $0.86), WSP Holdings (WH, $1.37, down $0.04)

 

FRIDAY

AO Smith (AOS, $44.07, down $1.12), American Electric Power (AEP, $37.31, down $0.06), Doral Financial (DRL, $1.73, down $0.06), Eastern Virginia Bankshares (EVBS, $3.98, up $0.38), General Electric (GE, $18.88, down $0.42), HMN Financial (HMNF, $2.75, down $0.20), Honeywell International (HON, $58.07, down $0.72), Idexx Laboratories, (IDXX, $85.02, down $1.21), Ingersoll-Rand (IR, $39.68, down $0.55), Kimberly-Clark Corporation (KMB, $74.35, up $0.18), Laporte Bancorp (LPSB, $8.25, Flat), ManpowerGroup (MAN, $43.39, down $0.89), McDonald’s (MCD, $96.97, down $0.67), Metrocorp Bancshares (MCBI, $10.09, down $0.06), National Penn Bancshares (NPBC, $8.97, down $0.14), Orbital Sciences (ORB, $12.87, down $0.12), Providence and Worcester Railroad Company (PWX, $15.07, up $0.03), Royal Caribbean Cruises (RCL, $27.30, down $0.43), Schlumberger Limited (SLB, $68.38, down $1.96), Sensient Technologies Corporation (SXT, $36.45, down $0.60), Under Armour (UA, $96.26, up $1.18)

= = = = = = = = = = = = = = = 

5.  Weekly Wrap Covered Call Portfolio Update (Closing prices as of 4/13/12)

 Other Closed Trades for 2012 (17-0, overall):  SZYM +55%, VVUS +38%, CALL +19%, BAC +20%, SYMC +16%, DAR +20%, TIVO +5%, MGM +22%, ZNGA +13%, SGMS +6%, VVUS +17%, F +8%, AA +7%, CLNE +27%, DNDN +18%, MGM +19%, ACAS +3%.   

 

Scientific Games (SGMS, $11.29, down $0.18)   

Original Entry Price:  $11.10 (3/20/12)

Lowered Price from Selling Options:  Waiting for shares to reach $12-$13

Exit Target:  $15+

Return:  2%

Stop Target:  None

Action:  We may try to sell the May 12.50 calls (SGMS120519C00012500, $0.30, flat) this week.  Shares traded down to $11.02 on Tuesday and rebounded to $11.57 on Thursday but closed below their 50-day moving average for the week.  Support has been strong at $11 but shares could test $10.50-$10 on a further pullback.  A close back above $12 would be bullish and we are expecting a great earnings report when the company announces in May. 

We recommended buying the stock at $11.10 on 3/20/2012.

 

Pandora (P, $8.66, down $0.32)

June 13 calls (P120616C00013000, $0.10, down $0.05)

Original Entry Price:  $10.58 (3/20/12)

Lowered Price from Selling Options:  $10.18

Exit Target:  $12

Return:  -15%

Stop Target:  None

Action:  Shares broke major support at $9.50 and blew past the 52-week low of $9.15 after kissing $8.54 on Tuesday.  This area will be strong resistance going forward.  If $8.50 fails to hold, the stock could fall another 10%-15% or down to $7.50-$7.  If so, we may add to our position but we will need to be careful and wait for a bottom.

We recommended buying the stock at $10.58 on 3/20/2012 and for every 100 shares to sell the June 13 calls for 40 cents.  This lowered the cost basis to $10.18.

If shares are called-away by mid-June at $13 the trade makes 28%.

 

E*Trade Financial (ETFC, $10.06, down $0.60)

April 10 calls (ETFC120421C00010000, $0.35, down $0.40)

Original Entry Price:  $9.73 (2/29/12)

Lowered Price from Selling Options:  $9.28

Exit Target:  $12

Return:  8%

Stop Target:  None

Action:  Shares fell below their 200-day and 50-day MA for the week but held $10 by Friday’s close which is where our strike price is.  Further support is at $9.50.  If $10 holds we will get called-away and will look to establish new positions.  Resistance will be strong at $11 unless a buyout offer emerges which we feel could happen over the summer.    

We recommended buying the stock at $9.73 on 2/29/2012 and for every 100 shares to sell the April 10 calls for 45 cents.  This lowered the cost basis to $9.28.

If shares are called-away by mid-April at $10 the trade makes 8%.

 

Bebe Stores (BEBE, $8.73, down $0.14)   

Original Entry Price:  $9.00 (2/22/12)

Lowered Price from Selling Options:  Waiting for shares to reach $10

Exit Target:  $8

Return:  -3%

Stop Target:  None

Action:  Bebe tested major support at $9.20 on Monday and fell below its 50-day MA on Tuesday’s pullback.  The low for the week was $8.65 and the next wave of support appears strong at $8.30 and then $8 if there is continued weakness.  A close above $9 would be bullish.

We recommended buying the stock at $9.00 on 2/22/2012

 

Pizza Inn (PZZI, $4.40, down $0.12)

Original Entry Price:  $4.50 (2/22/12)

Lowered Price from Selling Options:  No options available

Exit Target:  $8

Return:  -2%

Stop Target:  None

Action:  Shares traded down to $4.34 on Wednesday and support has been solid at $4.50-$4.25.  There is further help down at $3.50 but we are hoping $4 sticks on a further pullback.

We recommended buying the stock at $4.50 on 2/22/2012.  

 

OCZ Technology Group (OCZ, $6.54, down $0.26)

Original Entry Price:  $9.60 (2/7/12)

Lowered Price from Selling Options:  Waiting for shares to reach $10

Exit Target:  $12+

Return:  -32%

Stop Target:  None

Action:  We said there could be further risk down to $6 and Friday 4% pullback puts shares on course to test this level.  The chart shows backup support at $5.75.  Resistance is now at $7 going forward.  

We recommended buying the stock at $9.60 on 2/7/2012.

 

Arena Pharmaceuticals (ARNA, $2.88, up $0.07)

July 3 calls (ARNA120723C00003000, $1.35, up $0.10)

Original Entry Price:  $1.88 (2/2/12)

Lowered Price from Selling Options:  $1.33

Exit Target:  $3+

Return:  109%

Stop Target:  None

Action:  Arena’s meeting with the Endocrinologic and Metabolic Drugs Advisory Committee got pushed back to June to discuss the safety and efficacy of its obesity drug, Lorcaserin.  Support was strong at $3 but the $2.60 level came into play when shares dipped to a low of $2.56 on Thursday.  If shares can make it back above $3, resistance will come in at $3.25-$3.50. 

We recommended buying the stock at $1.88 on 2/2/2012 and for every 100 shares to sell the July 3 calls for 50 cents.  This lowered the cost basis to $1.33.

If shares are called-away by mid-July at $3 the trade makes 117%.

 

MGM Resorts (MGM, $13.92, up $0.06)

April 14 calls (MGM120421C00014000, $0.25, flat)

Original Entry Price:  $13.77 (2/2/12)

Lowered Price from Selling Options:  $12.67

Exit Target:  $15

Return:  10%

Stop Target:  None

Action:  MGM traded down to $13 on Tuesday but held up well for the week.  The close above $13.50 the following day was crucial but we will need shares to overtake $14 and the 50-day MA which could be hard to do if the market continues to slide.  If so, we will be called away but if not, we don’t mind holding the stock and selling another option next week.

We recommended buying the stock at $13.77 on 2/2/2012 and for every 100 shares to sell the March 15 calls for 45 cents.  This lowered the cost basis to $13.32.          

On 3/20/12 we recommended selling the April 14 calls for $0.65 which lowered the cost basis to $12.67.

If shares are called away in mid-April at $14 the trade will make 10%.

 

Patriot Coal (PCX, $6.18, down $0.03)

April 9 call (PCX120421C00009000, $0.03, flat)

Original Entry Price:  $8.91 (1/12/12)

Lowered Price from Selling Options:  $8.31

Exit Target:  $15

Return:  -26%

Stop Target:  None

Action:  Patriot tested a low of $5.42 on Tuesday but was able to reclaim $6 by Thursday’s close.  There is additional support at $5 and the company remains a possible buyout candidate at these low levels.  A close above $6.50 would be bullish.  

We recommended buying the stock at $8.91 on 1/12/2012 and for every 100 shares to sell the February 10 calls for 40 cents.  This lowered the cost basis to $8.51.

On 2/29/12 we recommended selling the April 9 calls for $0.20 which lowered the cost basis to $8.31.

If shares are called away in mid-April at $9 the trade will make 9%.

 

Bank of America (BAC, $8.68, down $0.49)     

April 8 call (BAC120421C00008000, $0.75, down $0.40)

Original Entry Price:  $6.75 (1/12/12)

Lowered Price from Selling Options and Dividends:  $6.34

Exit Target:  $15

Return:  37%

Stop Target:  None

Action:  Our gains have been capped at $8 since February which is when shares first popped above our strike price.  Friday’s 5% pullback gets $8.50 back into the mix, followed by $8.25-$8.  If we are called-away, we will look to establish another position at lower levels.

We recommended buying the stock at $6.75 on 1/12/2012 and for every 100 shares to sell the April 8 calls for 40 cents.  This lowered the cost basis to $6.35.

If shares are called-away by mid-April at $8 the trade makes 26%. 

 

Alcoa (AA, $9.85, down $0.32)

April 11 calls (AA120421C00011000, 0.02, down $0.02)

Original Entry Price:  $9.65 (1/12/12)

Lowered Price from Selling Options and Dividends:  $9.17

Exit Target:  $11

Return:  7%

Stop Target:  None

Action:  Alcoa surprised Wall Street after reporting a solid quarter and easily beating estimates.  We said shares could move past double-digits if they beat expectations but resistance at $10.50 will be hard to overcome now that the news is out.  The company said aluminum demand was decent so we don’t mind holding Alcoa for another few months if there is a test down to $9 again. 

We recommended buying the stock again at $9.65 on 1/12/12.    

On 1/23/12 we recommended selling the March 11 calls for $0.25 which lowered the cost basis to $9.40.

On 2/1/12 the company paid a 3 cent dividend which lowered our cost basis to $9.37.

On 3/20/12 we recommended selling the April 11 calls for $0.20 which lowered the cost basis to $9.17.

If shares are called away in mid-April at $11 the trade will make 20%.

 

Newpark Resources (NR, $7.46, down $0.10)

Original Entry Price:  $9.45 (7/27/11)

Lowered Price from Selling Options: $7.85

Exit Target: $10+

Return:  -5%

Stop Target: None

Action:  The close below $7.50 on Tuesday was bearish and was a 52-week low is at $5.19.  We would like to see $7 hold on further weakness but if not we could test the yearly low.

We recommended buying the stock at $9.45 on 7/27/11 and for every 100 shares to sell the August 10 calls for 50 cents.  This lowered the cost basis to $8.95.

On 9/15/11 we recommended selling the December 10 call option for $0.85 which lowered the cost basis to $8.10.

On 1/25/2012 we recommended selling the March 12.50 call at 25 cents which lowered our cost to $7.85. 

 

Trades on HOLD:  Rambus (RMBS, $5.64, down $0.27), Rare Element Resources (REE, $5.90, up $0.05), AKS Steel Holding (AKS, $7.39, down $0.26), DryShips (DRYS, $3.29, down $0.12)

= = = = = = = = = = = = = = = 

6.  Week Ahead

The week starts off with a bust Monday as Retail Sales and the Empire Manufacturing report are due out an hour before the opening bell.  Business Inventories and the NAHB Housing Market Index will be released at 10am (EST).

Tuesday’s session Housing Starts and Building Permits at 8:30am followed by Industrial Production and Capacity Utilization numbers 15 minutes before the start of trading.

Wednesday’s docket is light and uneventful as the MBA Mortgage Index is out before the bell while Crude Inventories are due out an hour after the open.   

Thursday’s action will be a market mover as Initial Claims and Continuing Claims hit the Street at 8:30am, followed by Existing Home Sales, Leading Indicators and the Philadelphia Fed numbers – all at 10am.

There are no economic reports scheduled for Friday.